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Argos is late, but still in the internet game Argos is late, but still in the internet game
(5 months later)
Home Retail Group's sales have now fallen for three years in a row and "benchmark" profits have been lower every year for the past five. Yet the share price has doubled since last summer, notwithstanding Wednesday's 6% decline. The market clearly thinks there's life left in the Argos and Homebase retailer.Home Retail Group's sales have now fallen for three years in a row and "benchmark" profits have been lower every year for the past five. Yet the share price has doubled since last summer, notwithstanding Wednesday's 6% decline. The market clearly thinks there's life left in the Argos and Homebase retailer.
There is certainly a lot of cash – almost £400m at the end of the financial year – which is half the battle when you are attempting to revamp two sizeable operations simultaneously. The effort at Homebase, the smaller business, is really a refresh. The debate is all about Argos, where the overhaul is more akin to a reinvention. Being a "digitally led business" involves changes to IT, distribution, product ranges and the stores.There is certainly a lot of cash – almost £400m at the end of the financial year – which is half the battle when you are attempting to revamp two sizeable operations simultaneously. The effort at Homebase, the smaller business, is really a refresh. The debate is all about Argos, where the overhaul is more akin to a reinvention. Being a "digitally led business" involves changes to IT, distribution, product ranges and the stores.
The good news is that, in the age of Amazon, the strategy is clearly correct. The bad news is that customers have moved faster than management. Internet orders already account for 42% of Argos sales: it would have been better if the overhaul had started in 2007, not 2012. Earlier action might have made the slump in profits, from £376m in 2008 to £100m last year, less severe.The good news is that, in the age of Amazon, the strategy is clearly correct. The bad news is that customers have moved faster than management. Internet orders already account for 42% of Argos sales: it would have been better if the overhaul had started in 2007, not 2012. Earlier action might have made the slump in profits, from £376m in 2008 to £100m last year, less severe.
But Argos is still in the game. The hope is that having a network of 700 stores available as pick-up points provides a competitive advantage over internet-only retailers whose customers may be bored by endless trips to Post Office depots. That skirmish is still to play out.But Argos is still in the game. The hope is that having a network of 700 stores available as pick-up points provides a competitive advantage over internet-only retailers whose customers may be bored by endless trips to Post Office depots. That skirmish is still to play out.
Chief executive, Terry Duddy, wants Argos to improve annual sales from £3.9bn to £4.5bn by 2018. That's 3% a year, so is hardly reaching for the sky: it ought to be possible. If operating margins can be made to improve from 2.6% to 5%, profits would be £225m, not £100m. That's why the share price has been excited.Chief executive, Terry Duddy, wants Argos to improve annual sales from £3.9bn to £4.5bn by 2018. That's 3% a year, so is hardly reaching for the sky: it ought to be possible. If operating margins can be made to improve from 2.6% to 5%, profits would be £225m, not £100m. That's why the share price has been excited.
Execution is everything, of course. Bears will argue that Argos has surrendered too much competitive edge already. Search for "childrens' gardening set" on Amazon and Argos, says Panmure Gordon's Philip Dorgan, and see the difference. (He's right: Argos should be embarrassed). Bulls will say Argos's like-for-like sales have finally stopped falling and that capital expenditure of £100m a year for three years can't fail to yield some improvement. We shall see. But the plan for Argos seems entirely sensible: that's a start.Execution is everything, of course. Bears will argue that Argos has surrendered too much competitive edge already. Search for "childrens' gardening set" on Amazon and Argos, says Panmure Gordon's Philip Dorgan, and see the difference. (He's right: Argos should be embarrassed). Bulls will say Argos's like-for-like sales have finally stopped falling and that capital expenditure of £100m a year for three years can't fail to yield some improvement. We shall see. But the plan for Argos seems entirely sensible: that's a start.
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